Competition Bureau statement regarding GFL’s acquisition of Terrapure

Position Statement

See the news release that corresponds to this position statement.


GATINEAU, QC, May 24, 2022 – Following a mediation process conducted by the Honourable Jocelyne Gagné, Associate Chief Justice of the Federal Court of Canada and a judicial member of the Competition Tribunal, the Commissioner and GFL Environmental Inc. (together with its affiliates, GFL) entered into a consent agreement in respect of GFL’s acquisition of Terrapure Environmental Ltd. (together with its affiliates, Terrapure) (the Acquisition), which was registered with the Tribunal on April 13, 2022.

This consent agreement, which requires GFL to divest seven facilities that provide industrial waste services (IWS) and/or oil recycling services (ORS), resolves the Commissioner’s concerns and brings an end to the Commissioner’s legal action against GFL. The seven facilities that must be sold by GFL pursuant to the consent agreement are located in the following cities (collectively, the Divestiture Facilities):

  • Nanaimo, British Columbia;
  • Prince George, British Columbia;
  • Big Valley, Alberta;
  • Nobleford, Alberta;
  • Lloydminster, Alberta;
  • Maidstone, Saskatchewan; and
  • Kelowna, British Columbia.

The Acquisition was announced on March 15, 2021, for an aggregate purchase price of approximately C$927.5 million. GFL closed the Acquisition on August 17, 2021.

This mediation stemmed from the Commissioner’s November 2021 application to the Competition Tribunal alleging that the acquisition by GFL of Terrapure would likely result in a substantial lessening or prevention of competition in the markets for the collection and processing of IWS and ORS in several markets in western Canada. The Commissioner is satisfied that the implementation of this agreement is necessary to ensure that the substantial lessening of competition is resolved. Furthermore, by reaching an agreement at an early stage of the litigation, the agreement will resolve the substantial lessening of competition in a shorter timeframe than would have occurred had the litigation run its course.

The Bureau’s investigation relied on quantitative and qualitative information obtained from GFL, Terrapure and numerous other stakeholders, including customers and competitors of both companies.

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Background

GFL and the former Terrapure (collectively, the Parties) are waste services firms that provide a range of environmental services to a wide variety of customers, including both public and private sector clients, across Canada. While the Parties offer many different services in many local and regional markets across Canada, the Bureau’s review of the Acquisition ultimately focused on the provision of IWS and ORS in western Canada. These services involve the collection, processing and final disposal of many waste streams generated by Canadian businesses in a manner that complies with environmental regulations.

The Bureau considered a number of competitive overlaps between the Parties throughout all of Canada. In addition to IWS and ORS in western Canada, which were the subject of the Application, GFL and Terrapure competed with one another in eastern and central Canada as well, in IWS, ORS, and other lines of business, such as marine waste.

Ultimately, following an extensive review of the evidence, the Application was limited to IWS and ORS in certain markets in western Canada. Markets that were ultimately not included in the Application are not discussed further herein.

Relevant Markets

Product Markets

IWS involves the collection, processing and disposal of industrial waste, which includes various hazardous and non-hazardous waste streams generated primarily from Canada’s industrial and manufacturing sectors. ORS involves the collection, processing and resale of used oil and related materials, such as oil filters, antifreeze, and containers for oil and antifreeze. Recycled oil is often sold as industrial fuel oil (IFO) or further refined into lubricants. The Bureau’s review determined that the relevant product markets were further subdivided into each of IWS collection and processing, and each of ORS collection, processing, and resale.

Waste services companies, such as the Parties, sell IWS and ORS solutions to their customers, which could range from narrowly targeted services that focus on one particular type of waste at a single location, to bundles of services that include many different IWS and ORS activities at numerous customer sites. Customers generally rely on waste services firms like the Parties to collect, process and dispose of their waste in an efficient manner that complies with environmental and other legislation. The Bureau found that only a limited number of large industrial customers have onsite disposal facilities that may reduce their dependence on service providers like the Parties.

Due to environmental rules and regulations, there is effectively no substitute for IWS. With respect to ORS, many Canadian provinces collect eco-fees from consumers at the point of purchase when buying motor oil and other products; in these provinces, stewardship organizations such as the Alberta Resource Management Association (ARMA), the Saskatchewan Association for Resource Recovery Corporation (SARRC), and the British Columbia Used Oil Management Authority (BCUOMA) distribute these eco-fees as incentives to processors and, in some cases, collectors of used oil. ORS collectors and processors like GFL and Terrapure are registered with these stewardship organizations, enabling them to receive incentive payments.

Geographic Markets

Many IWS and ORS customers require regular waste collection service and, as a result, waste services providers benefit from operating locations close to their customers. Competitors located further away from customers face increased transportation costs, making it more difficult to compete on price. , Firms like the Parties, with several facilities located strategically across Canada, are able to offer better service at a lower transportation cost. Similarly, IFO is primarily purchased by road paving companies and pulp and paper mills, who depend on reliable delivery of IFO to burn in their production processes. This generally requires a supplier in relatively close proximity to minimize the transportation costs and ensure that production is not impacted.

Accordingly, the Bureau determined that the relevant geographic markets are regional in nature.

Competitive Effects

As noted above, GFL and Terrapure were both leading providers of IWS and ORS in many regions across Canada prior to the Acquisition. After an extensive review, the Bureau concluded that competition was likely substantially lessened in three regional markets in British Columbia and Alberta for IWS and in several regional markets across British Columbia, Alberta and Saskatchewan for ORS.

The Bureau found that the Parties were fierce rivals in the markets at issue and that the Acquisition removed a vigorous and effective competitor. GFL and Terrapure competed vigorously for customers who generate waste or purchase IFO, as well as for independent collectors who require third party processing services. This rivalry, which included close competition on price, service quality, and service bundles, significantly benefitted customers. Evidence collected by the Bureau demonstrates that the Parties routinely evaluated one another’s competitiveness when competing for major customers in the markets at issue, and reduced prices as a direct response to the other. With the closing of the Acquisition in August 2021, this rivalry and its benefits to the Canadian economy were lost.

The Bureau further determined that the remaining competition in the markets at issue was not sufficient to constrain GFL’s market power. In fact, in some markets that are subject to the consent agreement, the Bureau found that there is minimal remaining competition, if any. As an example, before the Acquisition, GFL and Terrapure operated processing facilities across the street from one another in Prince George, British Columbia, with no other comparable competing facilities in the region.

The Bureau therefore concluded that competition was likely substantially lessened in the relevant markets as a result of the loss of the intense rivalry between GFL and Terrapure that was removed by the Acquisition, and the insufficient level of remaining competition.

Barriers to Entry and Expansion

The Bureau found that barriers to entry and expansion in the relevant markets are high. Potential entrants face challenges stemming from multi-year regulatory barriers associated with obtaining permits, substantial sunk capital costs required to build processing facilities, sunk costs associated with generating economies of scale, the maturity and expected decline of the IFO market, and the strong incumbency position of established firms like the Parties.

Due to these substantial barriers to entry, the primary method by which firms enter and expand into new markets is by acquiring other firms, rather than by constructing new facilities. Entry by acquisition has been a key driver of GFL’s growth: according to its 2021 Annual Report, GFL closed 46 acquisitions in 2021 alone, including the acquisitions of Terrapure and of certain business lines from Stericycle, a company that had previously competed in the IWS market with GFL and Terrapure. This pattern was on full display on Vancouver Island, where both GFL and Terrapure had previously acquired almost all of the independent IWS and ORS competitors based on the island prior to the Acquisition.

The Bureau also found that new entrants would require significant scale in order to credibly compete with entities like GFL. Firms can more readily achieve this through acquisitions, enabling them to benefit from increases to route density and more diverse service offerings.

Accordingly, the Bureau concluded that these high barriers mean that entry is not likely to be timely or sufficient in these markets.

Remedy

Pursuant to a consent agreement registered with the Competition Tribunal on April 13, 2022, GFL is required to sell the Divestiture Facilities to an independent purchaser or purchasers to be approved by the Commissioner. With the exception of the Kelowna facility, these divestitures will include the entire IWS and ORS business that was operating at these facilities prior to the Acquisition. The sale of the GFL Kelowna facility will include permits, physical infrastructure and equipment, but not employees or customers.

The consent agreement further requires GFL to preserve the economic viability, marketability and competitiveness of Divestiture Facilities in an equivalent state to that which existed at the closing of the Acquisition until the Divestiture Facilities are sold.

The Commissioner is satisfied that the sale of the Divestiture Facilities will address the likely substantial lessening of competition in the Divestiture Markets with respect to the provision of IWS and/or ORS. In the context of the mediated settlement, this agreement concludes the Commissioner’s legal action against GFL.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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